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China’s Solar Advantage? Manufacturing And Supply-Chain!

September 5, 2013

Many investors in the solar industry attribute China’s advantage in the solar industry to massive government subsidies and a large workforce consisting of inexpensive labor. But in a study released by the Royal Society of Chemistry’s (RSC) journal, Energy & Environmental Science, large-scale manufacturing and supply-chain benefits also play a role.

Because solar manufacturers in China enjoy a density of production and the cost-benefit of using local suppliers, the RSC states that they enjoy a Minimum Sustainable Price (MSP) advantage of 23 percent per watt.  The MSP represents the lowest price solar manufactures can sell their product for and still achieve a profit.

According to the RSC, the 2012 estimated MSP for United States solar panels was $1.19 per Watt for US solar panels versus $0.91 per Watt for Chinese solar panels.

The RSC study refutes the notion of cheap labor helping China’s solar industry as regional influences negate this advantage. But the RSC believes that large scale solar panel manufacturing in the region, which is enabled by access to capital and a less restrictive business and regulatory environment, are the prime factors in the difference in MSP.

There is hope for manufacturers outside of China as the RSC believes China’s success could easily be replicated. But it’s not that simple according to Al Goodrich, Senior Analyst at NREL and lead author of the study.

Mr. Goodrich states, “for solar power, there’s a chicken and egg problem: consistent demand is needed to provide manufacturers with access to the capital required to achieve large scale production, but large-scale production will be necessary for solar power to compete as an energy source without subsidies.

Researchers at the US Department of Energy’s National Renewable Energy Laboratory (NREL) and Massachusetts Institute of Technology (MIT) developed the bottom-up cost model for MSP to examine the underlying causes for the shift in the global manufacturing base of photovoltaics from the US and Europe to China.

Despite the supposed difference in MSP, shares of First Solar (FSLR :NASDAQ) were up 4.8 percent in afternoon trading.

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